All Change for ISA Reform?
Catherine Alexander
Partner at GDA
In her mansion house speech in July, the chancellor confirmed that the government will not go ahead with any reforms to the cash ISA, at least for the time being anyway, opening the door to further consultation. It was widely believed that she would cut the £20,000 cash ISA allowance, but concerns from the finance industry and high-profile voices like Martin Lewis are believed to have influenced the decision. They argued that slashing the cash ISA allowance would penalise cautious savers and undermine mortgage funding.
The chancellor’s objective with the reform was to encourage savers to shift toward Stocks and Shares ISAs, driving more long-term investment into UK businesses and away from low-yield cash savings. However, while attractive in theory, cash ISAs are highly a very beneficial savings vehicle as they offer tax-free growth and flexibility for savers e.g., emergency funds or mortgage deposits, and are particularly popular in uncertain economic conditions.
“Around 12.4 million adult ISA accounts were subscribed to in 2022 to 2023, up from 11.8 million in 2021 to 2022. Similarly, the number of cash ISAs subscribed to increased by 722,000. As a result, the share of accounts subscribed to in cash has risen to 63.2%, a 2.5% growth from 2021 to 2022. Meanwhile, the number subscribing to stocks and shares ISAs decreased by around 126,000.”
There are many individuals who have significant cash ISA balances, and would most certainly benefit from a conversation about the purpose of their savings, and in many cases could choose a more blended approach including investment products to increase their growth potential – always taking account of their differing life stages and risk appetities.
For the time being, the £20,000 Cash ISA allowance remains intact for the 2025/26 tax year - but the chancellor hasn’t ruled out reform altogether, and changes could still arrive in the Autumn Budget. Instead she is doubling down on efforts to encourage the uptake of Stocks and Shares ISAs, including reducing lengthy risk warnings that may scare savers off. The next few months are likely to be crucial in shaping the future of ISA flexibility and savings culture in the UK.
This article is for general information and does not constitute personal financial advice. If you’re unsure what’s best for you, seek independent financial advice.
